MccArthy v Tann & Ors

An application to extend time for challenging a liquidator’s decision on a proof of debt is governed by a fact-sensitive assessment of the seriousness and significance of the default. A short delay does not automatically constitute a serious breach because the insolvency process requires certainty. The court must apply the three-stage approach in Denton v TH White Ltd, but materiality is only a guide to seriousness and significance, not a separate test. Where the breach is neither serious nor significant, further stages need not be considered. Under section 155 of the Insolvency Act 1986, inspection may be ordered where it is for the purpose of the winding up and would be just. The order should be confined to inspection reasonably connected with the proposed challenge.

The applicant was a contributory and creditor of Emerald Meats (London) Ltd, which was in solvent liquidation. The joint liquidators admitted a proof of debt submitted by the third respondent in the sum of £53,900.68. The applicant sought an extension of three business days to appeal that decision under rule 4.83 of the Insolvency Rules 1986.

He also sought inspection of the company’s books and records under section 155 of the Insolvency Act 1986. The respondents opposed the extension and inspection, relying on delay, costs and the need for certainty in the liquidation. The central issues were whether the default was serious or significant and whether inspection was for the purpose of the winding up and just.

1. Extension of time. The court held that rule 4.83 of the Insolvency Rules 1986 conferred jurisdiction to extend the 21-day period. The period was not an absolute bar. The relevant approach was the three-stage test in Denton v TH White Ltd: assess the seriousness and significance of the breach, identify why it occurred, and evaluate all the circumstances, giving particular weight to efficient and proportionate litigation and compliance with rules and orders.
2. Materiality could assist in assessing seriousness and significance, but was not an alternative test. The three-business-day delay did not imperil a hearing date, disrupt the litigation or liquidation, or cause a significant increase in costs. The fact that insolvency proceedings are collective and require certainty did not make every breach serious. The breach was therefore neither serious nor significant, and it was unnecessary to consider the second and third stages.
3. The applicant’s proposed appeal was not hopeless. Evidence indicating a possible error in the admitted proof, together with issues concerning company transactions and loan accounts, gave the appeal real prospects of success. An extension would therefore not be made in vain.
4. Inspection. Section 155 of the Insolvency Act 1986 required consideration of whether inspection was for the purpose of the winding up, whether the order would be just, and what order should be made. An appeal against admission of a proof concerned the liquidators’ statutory functions and could affect distribution to the contributories as a class. Inspection was accordingly within the statutory purpose and was just.
5. The applicant and his nominated expert accountant were permitted access to the company’s books and records for the purpose of challenging the proof of debt. The parties were given liberty to apply concerning the scope and timing of inspection.